Fulfillment Partner Best Practices Lower Costs and Risk of Stockouts
Demand planning analytics provided by your fulfillment partner are critical to ensuring the right inventory is in the right place at the right time. What’s more, multiple-point fulfillment across a fulfillment center network can support fast delivery of orders, eliminate stock-outs, and maximize revenue. Based on years of experience, TAGG Logistics has an in-depth understanding of demand planning, using industry best practices to provide optimal service to our customers.
What is demand planning?
Let’s start with a definition: demand planning is a fulfillment process of forecasting, or predicting, the detailed demand for products to ensure they can be delivered and satisfy customers. That might sound easy, but in an increasingly complex world, having the experienced staff and technology systems in place is critical.
Mike Moorhem, Director of Solutions Engineering at TAGG says, “The goal is to strike a balance between having enough inventory to meet customer needs—without having too much.” Demand planning also takes into account seasonality and regional shifts in demand to ensure that inventory is distributed to the right fulfillment centers for the most efficient fulfillment process.
The Hub and Spoke approach
The “Hub” is an optimally placed TAGG fulfillment center with the closest proximity to where the majority of demand is. The “Spokes” are regional or local fulfillment centers that place inventory close to other pockets of demand, for example, based on a seasonal need or special promotion in a local market. Done correctly, TAGG can produce multiple-point fulfillment options that drive cost reductions or keep cost flat across the entire fulfillment network.
Moorhem presents a common scenario:
“Company A writes three purchase orders from a single vendor in the Midwest to supply inventory to multiple sites for a new product launch. A pre-determined forecast plans for the number of units that should show up in Chicago, IL; Reno, NV and Duncan, SC fulfillment centers — enough to last for 90 days. The product arrives as planned and all sites begin to distribute product.”
Moorhem continues, “Imagine 60 days later, a special sale runs, and Southeast sales are stronger than the forecast. As a result, the Duncan, SC fulfillment center runs out of stock. What should you do?” Here are the options: You can ship out of another location altogether – say Reno or Chicago – that will result in even higher parcel costs and longer transit times. Or, the better option is transferring product from Chicago to Duncan, only incurring a more digestible expense for the inbound transportation to get replenishment inventory to Duncan.
Hub and Spoke is a solution to help in times of scarcity or shortage of products in one fulfillment center, while having an excess of the same product in another fulfillment center. In the scenario above, the client would have been much better off writing a single PO into Chicago, and deploy replenishment inventory out of the Chicago HUB to the Reno, NV and Duncan, SC spokes monthly.
TAGG’s Hub and Spoke approach recommends shipping all the inventory to a single facility first (the Hub) and then redistributing inventory to the other secondary locations (the Spokes) based on order volumes closer to the time period actual demand is projected to occur. Moorhem says, “For example, if we know a promotion is happening in a certain region that will cause a concentration of orders over a specific time period, we’ll move inventory to the spoke just in time for the promotion. We only need 7-10 business days’ notice before the promotion.”
In addition to seasonal fluctuations and promotional spikes in demand, subscription-based orders are another option for the Hub and Spoke model—while demand is steady, it typically affects a limited number of SKUs that change over time or a single sales channel.
Reducing transportation costs and risk of stockouts
Moorhem explains how it works, “Imagine a scenario where a client that sells suncare products has a hub fulfillment center in Chicago, IL. All of their inventory is shipped to that hub initially. During spring break season, TAGG sends an extra 40 pallets of product to the Duncan, SC fulfillment center—repositioning inventory closer to where students on spring break will buy it.” There are multiple benefits to this approach:
- Lower initial transportation costs. By shipping all the product to a single hub—instead of multiple fulfillment centers—cost for the initial shipping can be consolidated and reduced.
- Lower outbound transportation costs. Even though there is added cost to reposition the 40 pallets of sunscreen in bulk as inbound freight to the Duncan, SC fulfillment center, there is much less distance to travel for outbound shipping to stores and consumers along the Atlanta and Florida coasts. What’s more, many orders at this point use parcel shipment, so it lowers overall shipping costs outbound.
- Eliminating stockouts. Good demand planning helps prevent scarcity and stockouts of any given SKU especially in regional markets during special promotions or seasonal spikes in demand. Demand planning may show that repositioning of certain inventory to the spokes is only temporary, or it may point to keeping a minimal level of inventory at the spokes continually.
- Printing branded materials. One tip Moorhem recommends, “Most clients don’t think of this—find an on-demand printer close to your Hub and Spokes, not just a single national vendor that is far away.” This reduces transportation costs for these materials and allows you to quickly replenish them in precise quantities when needed.
For many customers, the Hub and Spoke approach is an excellent solution for:
- Supporting just in time Flash Sales or Promotions Routine
- SKUs that are bought in regional markets
- Managing new SKU launches
Moorhem warns, “If the velocity of inbounds from a single vendor increase into a single spoke, then repositioning from the hub has fewer benefits in terms of cost savings.
Conclusion
TAGG believes that proper demand planning requires the right expertise and analysis. “We have many customers who have seen great results by switching to the Hub and Spoke approach, from a more traditional distribution model. That’s why increasingly clients are turning to TAGG to help them. We’ve got the experience and the engineering support to have a significant impact on their bottom line.”
Maximizing the efficiency of your inventory through demand planning with TAGG is just one way you can take Your Business EverywhereSM today. TAGG is here to be your 3PL fulfillment partner.
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